Futures trading strategies

What are futures trading strategies?

Futures trading has become increasingly popular in recent years as more people look for opportunities to make money in the stock market. It can be a tricky endeavor and requires a lot of research and dedication. That said, having a good strategy can help you maximize your profits when trading futures. In this blog post, we’ll discuss different futures trading strategies that you can use to make money in the stock market. We’ll go over different types of orders, various markets to trade in, and risk management tips that will help you stay on top of your trades. Read on to learn more about how you can optimize your profits with futures trading!

futures contracts

What is futures trading?

Futures trading is an investing strategy that involves buying or selling contracts for future delivery of a commodity, security, or index. Futures contracts are standardized agreements that are traded on exchanges. They typically involve the purchase or sale of a commodity, security, or index at a specified price on a set date in the future.

Futures trading can be used as a hedging tool to protect against price movements in the underlying asset. It can also be used to speculate on price movements in the underlying asset. Futures contracts are often used by big institutional investors to manage risk. However, futures trading is not without risk. The price of the underlying asset can move in unexpected ways and cause losses for investors who are not properly prepared.

Before entering into a futures contract, it is important to understand the terms of the contract and the risks involved. It is also important to have a plan for how you will exit the trade if things go wrong. A well-thought-out trading plan can help you minimize your losses and maximize your profits.

The different types of futures contracts

Futures contracts come in all shapes and sizes, from the popular commodities like gold and oil, to metals, energies, financials, grains, livestock, and even weather. The variety of futures markets means there’s a contract out there for just about anything you could want to trade.

But with all of these different types of futures contracts available, how do you know which one is right for your trading strategy? In this article, we’re going to take a look at the different types of futures contracts and what they each entail.

Commodity Futures Contracts:

The most popular type of futures contract is the commodity future. Commodity futures are based on physical goods like crude oil, gold, silver, corn, wheat, coffee beans, and more. These contracts are traded on commodities exchanges like the New York Mercantile Exchange (NYMEX) and Chicago Mercantile Exchange (CME).

CME futures exchange

Financial Futures Contracts:

Financial futures are based on financial instruments like bonds, interest rates, stock indexes, and currency exchange rates. These contracts are traded on exchanges like the Chicago Mercantile Exchange (CME) and Intercontinental Exchange (ICE). Financial futures can be used to speculate on the direction of the market or to hedge against risk in a portfolio.

Metal Futures Contracts:

Metal futures are based on precious metals like gold, silver, platinum, and palladium.

Pros and cons of futures trading

There are a number of pros and cons to futures trading that need to be considered before embarking on this type of investment. On the plus side, futures contracts can provide investors with exposure to a wide range of assets including commodities, currencies, and index futures. This flexibility can allow investors to hedge against specific risks or take advantage of opportunities in the market. Additionally, leverage is available in futures trading which can magnify gains (or losses).

On the downside, leverage can also amplify losses which can lead to margin calls if an investor’s account falls below a certain value. Futures trading is also a complex endeavor which requires knowledge of contract specifications, margin requirements, and risk management techniques. Finally, the use of stop-loss orders may not always be effective in limiting losses due to slippage or gapping in prices.

Margin requirements for futures trading strategies

Margin requirements refer to the amount of money required to be deposited in a futures trading account as collateral to cover potential losses. In futures trading, margins are set by the exchange where the contract is traded and are determined based on the volatility and price of the underlying asset.

For futures trading strategies, the margin requirement can vary greatly depending on the contract being traded and the brokerage firm used. In general, margin requirements for futures trading are higher compared to stock trading because of the inherent leverage and risk associated with futures contracts.

For example, a common margin requirement for trading stock futures might be around 20-25% of the value of the contract, meaning a trader would need to deposit that amount as collateral in order to trade one contract. These requirements may change frequently and it’s important for traders to stay informed and be aware of their obligations in terms of margin.

It’s also important to note that if a trader’s account falls below the minimum margin requirement, they may receive a margin call from their brokerage firm, requiring them to deposit additional funds or close out positions to bring the account back up to the required level.

To read more about different futures contracts and the required margins visit TradeStation website. To learn how to properly size your account in order to be able to safely trade futures contracts, download my free eBook.

Futures trading strategies

The most common futures trading strategies are:

1. Scalping
2. Trend following
3. Counter-trend trading
4. Spread trading
5. Arbitrage
6. Break-out strategies

Scalping is a short-term trading strategy whereby traders seek to profit from small price movements in a stock or other asset. This strategy generally involves taking a position in the asset and then selling it very shortly afterwards, before the price has a chance to move significantly. Scalpers may take multiple positions throughout the day, and their goal is generally to make small but consistent profits over time.

Trend following is another common futures trading strategy, whereby traders attempt to profit from longer-term trends in asset prices. To do this, they will first identify the overall direction of the market (up or down), and then take a position accordingly. They will then hold onto this position until they believe the trend has reversed, at which point they will close out their position and take their profits.

Counter-trend trading is the opposite of trend following, and involves taking a position against the prevailing trend in the market. For example, if the market is trending downwards, a counter-trend trader would take a long position (betting that the price will go up). This type of trader is usually seeking to profit from a temporary reversal in the market trend, rather than from any sustained change in direction.

Spread trading involves taking two opposing positions in different assets in order

Breakout trading strategies are a type of technical analysis that aim to identify potential price movements by identifying and trading off of chart patterns or key levels of support and resistance. In these strategies, a trader looks for prices to “break out” from a defined range, with the idea being that a move outside of the range could signal a sustained trend in the direction of the breakout. Once the breakout occurs, traders will often set a stop loss and profit target to manage their risk and reward. This type of strategies can be very profitable and this is what our blog is all about. We are using semi-professional tools like StrategyQuant to fully automate our strategy development. Read more here.

futures trading strategies example

Ready to use futures strategies

What most people do not know is that starting with futures trading can be very easy, just by trading using ready-to-use strategies: read more on my blogpost.

ready-to-use futures trading strategies

Conclusion

Futures trading strategies can be a great way to make money in the stock market, but it’s important to select the right strategy for your needs. Before you start trading, take some time to review all of your options and decide which techniques will be most beneficial for your portfolio. Doing so will help ensure that you are making wise decisions and maximizing profits from every trade. With these tips in mind, we hope that you are now more equipped to open up a futures account and begin growing your wealth through successful futures trading!

Want to learn more about futures trading? Download my free eBook.


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